Finance Minister Jim Flaherty says he is convinced G7 countries are committed to balancing their budgets even though some European nations have indicated it's time to end austerity measures.
"Coming to this meeting I expressed concern that some of my colleagues were straying from this approach," Mr. Flaherty said Saturday at the end of a two-day meeting of G7 finance ministers and central bankers outside London. "However, this meeting confirmed that there are more areas of agreement between us on fiscal policy than is commonly assumed. Although we made some progress on this front we will need to continue efforts to build on our previous commitments."
Mr. Flaherty has been among the most vocal at the G7 in calling for so-called fiscal consolidation. However, several European countries, notably France, have indicated that austerity measures have gone far enough and that governments need to stimulate their economies to reduce unemployment. On Saturday, Mr. Flaherty appeared to accept some of that view.
"I think there's a fundamental agreement with my primary point at these meetings which is … sound fiscal policy," he said. "If a country doesn't have a sound fiscal policy it will never get education right or health-care or skill training or anything else because the country will eventually be overpowered by its fiscal mess."
However, Mr. Flaherty added that he understood the issues facing many countries, particularly in Europe, where unemployment levels have soared above 20 per cent. "The concern, which is a very human concern, also is what about large numbers of unemployed people and so on. And does fiscal consolidation, moving toward balanced budgets and controlling spending, does that mean that one ignores those who are struggling? The answer is no and I think we're agreed on that, that governments can still act."
He added that he dislikes the word "austerity" saying it suggests "slashing and burning" and "war-time rationing." "We're not, thank goodness, in that situation in most of the world," he said.
When asked if he still felt some countries have strayed from the notion of cutting spending, Mr. Flaherty replied: "It's more they're reiterating their commitment to fiscal consolidation and that they are not abandoning that goal."
Another hot topic during the informal meeting was currency wars and whether countries like Japan have been driving down their currencies to give their exports a price advantage. The Japanese government has embarked on an aggressive program of pumping money into the economy to help revive it from years of recession. That has pushed the yen to a four-year low against the U.S. dollar. Some G7 ministers, in particular U.S. Treasury Secretary Jacob Lew, came into the meeting on Friday expressing concern about the Japanese moves.
Mr. Flaherty said the issue was discussed during the meeting. "There were expressions of concern," he said, without singling out any country. "There always are when it appears that the value of currencies are not being set in the open market."
Japanese officials have insisted their actions have not been targeted at driving down the yen. And George Osborne, Britain's Chancellor of the Exchequer, said all G7 members reaffirmed a commitment "not to target exchange rates."
Referring to fiscal consolidation, Mr. Osborne added: "I think people will be surprised that there is more agreement than is commonly assumed between countries."
The meeting was held in a 200-year-old country inn about an hour northwest of London. The G7 is considered a grouping of the world's richest countries consisting of Canada, the U.S., Britain, France, Italy, Germany and Japan. However, it has become largely irrelevant in recent years with the rise of the G20, a larger group that includes developing giants such as China, India and Brazil.
One subplot during this meeting involved Mark Carney, Governor of the Bank of Canada, who is set to become Governor of the Bank of England in July. Mr. Carney kept a low public profile at the weekend meeting, avoiding the media entirely. Mervyn King, the outgoing Governor of the Bank of England, spoke about his pending retirement, noting that he had attended 25 G7 gatherings in his career.
"In a week in which retirement came to Sir Alex Ferguson it's pretty clear it has to come to everyone," Mr. King told reporters, referring to the long-time manager of Manchester United who announced his retirement this week. "I did say to my colleagues at the G7 last night that I will not be scouring the Internet to read the details of the next communiqué."
The meeting also ended on a light moment when Mr. Osborne was asked by a reporter to identify his favorite Star Wars character. The question came because the makers of the movie series have indicated that the next installment will be made in Britain. Mr. Osborne said the decision is a boost of confidence in the British film industry and will help create jobs.
His favorite character? Han Solo.